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The Globe 100: Massachusetts Businesses Index of coverage The Globe 100 chart

Gamble wins big at Boston Scientific Stent maker soars despite major recall

By Ross Kerber
Globe Staff / May 17, 2005
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Boston Scientific Corp. didn't just have a great year. It also managed to avoid what could have been a disaster year.

Posting a whopping 62 percent increase in revenue, the Natick medical-device company sailed into the top spot on the Globe 100 ranking of the best-performing Massachusetts companies. In a milestone for the state's closely watched life sciences sector, Boston Scientific became the first company from the cluster to top the Globe 100. The honor typically has gone to old-line financial services and technology companies.

Boston Scientific achieved torrid growth -- increasing sales by more than $2 billion last year -- even as it overcame what could have been a crippling recall last summer involving deadly safety problems linked to its most important product ever.

That product is the Taxus drug-coated cardiac stent, which doctors use to keep blood flowing through patients' clogged arteries and avoid risky open-heart surgery. The Taxus design features a special coating of a drug that is slowly released to reduce the growth of scar tissue, a common side effect of bare-metal stents that can require repeat operations to clear arteries.

Boston Scientific spent $350 million to develop Taxus.

After years of reviews, US regulators approved the device for sale in March 2004. The sales quickly drove massive revenue growth for Boston Scientific.

For all of 2004, the company earned $1.06 billion on revenue of $5.62 billion, up from a 2003 profit of $472 million on revenue of $3.48 billion.

New, enhanced versions of Taxus and scant threat of competition promise several more years of sales increases for Boston Scientific. The product shows that success can take time, said chief operating officer Paul LaViolette.

''When you see an opportunity, especially in the medical-devices field, it will never be around the corner," LaViolette said. ''The development hurdles and the investment challenges are going to be humbling, and you have to just pursue your goals with persistence, doggedly, through thick and thin."

Stents, tiny wire-mesh tubes, are used to prop open arteries after they have been cleared of blockages through a surgical procedure known as angioplasty. Boston Scientific had the chance to license the first cardiac stent in 1993, but then-chief executive Peter Nicholas, still the company's chairman, decided it could not afford the $40 million fee.

New Jersey medical-devices firm Johnson & Johnson wound up with the license instead. Brought in as chief executive in 1999, James R. Tobin decided to bet Boston Scientific's future on Taxus.

Boston Scientific's bread and butter to that point had included bare-metal stents and catheters. But in 2000, Tobin cut nearly 2,000 jobs and closed three plants to pay for the development costs of Taxus.

The gamble paid off. Today only J&J has a competing drug-coated stent on the market, but it has been hamstrung by manufacturing problems.

Other device companies such as Medtronic Inc. are years away from getting their drug-coated stents approved. Just months after Boston Scientific introduced Taxus, it came to control more than two-thirds of the market, propelling its stock to a record high of $45.81 last April 5.

''As a company, one would have to say it performed very well" last year, said AG Edwards analyst Jan Wald. ''Its ability to enter, take, and keep market share showed the depth and strength of its sales force."

But throughout the spring, Boston Scientific was dogged by reports of problems a few doctors had removing the catheters used to place the stents in patients. On July 2, the company withdrew 200 stent systems because of what it thought was a small manufacturing flaw.

But on July 16, Tobin stunned investors by recalling 85,000 Taxus systems, and 11,000 other stents. The decision was made amid reports three heart patients had died and more than 40 had been injured when catheter balloons failed to deflate, potentially because of the way they were made. The company undertook deep reviews of its manufacturing process, though it declared a third recall in August. Ultimately the recall burned up $78 million and caused the company's shares to plunge.

In hindsight, company executives say -- and many doctors and analysts agree -- that Boston Scientific handled the crisis well. Workers manned the company's Quincy distribution center into the early hours July 17 to make sure hospitals had safe replacement stents available.

Federal regulators scrutinized its manufacturing processes but said they found no grounds to penalize the company, which quickly recaptured market share.

One recall would have been better than three, executives acknowledge. But Tobin said the manufacturing issues were ''too subtle to catch" sooner and only became apparent as production was ramped up.

Still, Boston Scientific's stock has yet to recover, and investors continue to worry about competition from other stent makers. They also question whether Boston Scientific can reinvest profits from Taxus in areas that are as lucrative.

But company executives say their new focus on devices such as implantable hearing aids and electronic painkillers will also pay off.

''We're forging ahead on the next chapter," LaViolette said, ''much in the same way we did in 2000 and 2001."

Ross Kerber can be reached at

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